The Serious Fraud Office (SFO) said it was “very pleased” when on March 12 2009 the two perpetrators of the largest fraud ever carried out by a state employee against a New Zealand government institution – the vulnerable Otago District Hospital Board (ODH) – were sentenced in the Dunedin High Court to lengthy prison terms. Both had been convicted by jury trial on 5 December 2008 of criminal intent to defraud the ODHB of $16.9 million using false documents.

The SFO described the $15.2 million fraud committed by the primary offender, former bankrupt Michael Andrew Swann, as the largest ever successfully prosecuted involving an individual person. Swann was sentenced to nine and a half years jail and his accomplice Kerry Gray Harford, to four years three months jail. Swann was chief information officer at ODHB and a member of its senior executive when the crimes were committed. In collaboration with his friend Hartford, a Queenstown surveyor and business associate, they defrauded the ODHB out of a total of $16.9 million between 1 September 2000 and 18 August 2006. (The Board was already $40 million in the red when Swann was stealing from it).

Swann was sacked by the Board from his job for “gross mismanagement” in early October 2006 soon after evidence began to emerge of “apparent irregularities” in the Sonnford Solutions invoices that Swann had submitted to the ODHB. He was served with civil court charges by the Board on 27 October 2007, charges which were then overtaken in May 2008 by SFO criminal charges.

$1.7 million of the stolen $16.9 million went to Harford. His role included providing the appearance of a legitimate third party in financial transactions, namely Sonnford Solutions Ltd (of which he was the sole director), that sent bogus invoices to the ODHB – and the laundering of the money back to Swann (less a 10% commission) via Computer South Ltd which was managed by Swann.

Swann then made payments over six years from his ‘lion’s share’ of the ‘dirty money’ into a trust account with Checketts McKay Law, Barristers and Solicitors – based in Cental Otago, with offices in Wanaka, Cromwell and Alexander. He also paid much of it into to a bank account in the name of Computer South Ltd of which one of the shareholders over the six years he defrauded the ODHB, was a partner in Checketts McKay (Wanaka) – Iain Grant Fyfe (he held 33% of Computer South shares from 1997 to September 2006). In addition Swann made payments to creditors such as car sales company Armstrong Prestige.

Computer South Ltd, a company incorporated in March 1997, provided no invoices to Sonnford Solutions Ltd for anything, had no employees, owned no assets, and was really just a bank account for Swann who was not operating a personal account.

Swann spent just under $8 million of his $15.2 million booty on cars and boats, $3.7 million on real estate, a little over $1 million on food, liquor and household items, with $1.1 million taken in cash.

His assets, as detailed in a Dunedin High Court document, comprised 12 properties, 21 vehicles, five vessels and five containers of vehicle parts.

About $6 million of the stolen money that went to Swann has yet to be located and the Dunedin police have been appealing to the public since 25 September 2010 for urgent help to locate it. Authorities assume it has been hidden away in assets such as “tainted” vehicles and properties – although many of these have been located.

Swann’s link with Checketts McKay, Barristers and Solicitors, is of particular interest, given the following points:

(1) On 14 September 2006 an agent for Checketts McKay removed all 34 shares held by Anna Laura Devereux (Michael Swann’s estranged wife) in Computer South Ltd, transferring them to Swann and Fyfe in a 50:50 split. Devereux had been the beneficiary of many of the tainted assets purchased by Swann using money stolen from the ODHB that was deposited in the Computer South bank account. Cars were traded in her name and she received rental income from “tainted properties” (a term used by Justice Graham Panckhurst in his High Court judgement). Lamborghinis and Porsches’ were purchased in her name by Swann using money stolen from the ODHB.

(2) Mr Fyfe told the Dunedin High Court that Swann instructed him to remove Ms Devereux as a shareholder from Computer South in September 2006. Devereaux told the High Court under oath that although she was principal shareholder, she had not been informed of any decision to remove her as shareholder and was not aware of who authorized this. Removing her name was in the interests of Swann who sought to conceal all links to himself (via his estranged wife) to the laundered of dirty money. Devereux held the shares on behalf of a trust set up by Checketts McKay Law that may well have had involved Swann.

(3) Mr Iain Grant Fyfe, one of five partners in Checketts McKay Law, held 33 of the total of 100 ordinary shares in Computer South Ltd from 20 March 1997 until 22 September 2006. His share was transferred to the company’s director, Peter Bruce Ibbotson, a plumber, just days before Swann was suspended from his job at ODHB after it had commenced an inquiry into his financial affairs while on the Board. The share transfer was effected on line by Kathleen Bennett of Checketts McKay (Wanaka).

(4) Computer South Ltd as the SFO established, carried out no real services or business other than operating as a de facto bank account for Michael Swann – a vehicle that enabled him to launder stolen money into numerous assets that took his fancy. Ibbotson gave testimony in Court that he was sole director of Computer South in name only and that Swann effectively ran all aspects of the company having full authorisation in all financial matters.

The Otago Daily Times reported “Other than holding the title of director, he [Ibbotson] had little to do with the company and was involved in name only…Mr Ibbotson said he recalled signing “heaps” of cheques, signing blank cheques, and signing Ms Devereux’s signature at times when she or Swann were not available.” (ODT 28/11/08).

(5) An alert regarding the ODHB probe into the payouts linked to Swann-approved invoices would undoubtedly have been picked by Checketts McKay staff and/or its principals. Devereux told the Court she first learned about Sonnford Solutions and its connection with Computer South of which she was a shareholder in October 2006 (after she was removed as a shareholder). She held the majority of Computer South’s 100 ordinary shares (34) from the incorporation of the company in March 1997 until 14 September 2006.

(6) A number of “tainted properties” – that is properties purchased by the proceeds of crime, were purchased by Swann and placed into the part ownership of Iain Fyfe and/or Checketts McKay Trustees Ltd. As Court records state, the Crown contended that Checketts McKay Trustees Ltd was set up to administer property purchased by convicted fraudster Michael Swann. Millions of dollars were spent to purchase tainted property.

(7) Iain Fyfe’s disposal of all his shares in Computer South Ltd just prior to the ODHB and SFO probe into Swann, did not end his relationship with the company, as he continued to hold all 100 shares jointly with company director Peter Bruce Ibbotson through to the present day. Iain Fyfe is listed as part owner with Peter Bruce Ibbotson of tainted property linked to Swann. There were seven Swann and Devereux trusts, set up to hold properties purchased by Swann and Mr Fyfe told the Dunedin High Court that he had little connection with the other trustees, Ms Devereux and Peter Ibbotson.

(8) The registered office, address for service and address for communication for the bogus company Computer South Limited has been Checketts MacKay Solicitors, Dunmore Street (PO Box 263), Wanaka since 20 March 1995, when the company was incorporated. The three applicants for incorporation were Peter Bruce Ibbotson, Anna Laura Devereaux and Iain Grant Fyfe.

(9) Mr Fyfe told the Dunedin High Court he met Swann through Swann’s wife, Anna Devereux, in 1988 and started acting for him in a professional capacity about 10 years later. The truth is he held 33% of the shares in Computer South which Swann managed, from 20 March 1997 to 22 September 2006.

Fyfe told the Court he initially saw Swann and Ms Devereux socially about four times a year, although they saw each other a little more frequently after they bought property in Wanaka. He said he did not discuss Computer South with Swann much, but confirmed with him every year that he wanted to keep the company going. Swann advised him every time money was to be received and gave clear instruction on how the money was to be dispersed, generally for either a property purchase or a vehicle purchase.

Before examining this Swann-Checketts McKay link in more detail, it is important to review how Swann and Hartford were able to defraud the ODHB of $16,902,145.27.

Swann who masterminded the scheme persuaded former best man at his wedding – Kerry Gray Harford – to form a company that came to be called Sonnford Solutions Ltd. This company and its predecessor Hartford, Sonnford & Associates Ltd, owned and directed by Harford, issued almost 1998 false invoices to the ODHB over six years claiming in total $16.9 million for insurance type services relating to the provision of IT licences, service and support. In reality no such services were ever provided, nor could they have been by Sonnford Solutions.

Swann, who married Anna Laura Devereux in 1995, was adjudged a bankrupt by the Courts in 1999 and in May 2007 the couple separated. According to her statement in the Dunedin High Court, when he came out of bankruptcy he traded through a company called Computer South Ltd and had access to its funds. He managed the company which he had set up and had authority to sign cheques and spend the company’s income. He did so lavishly on all that took his fancy.

Peter Bruce Ibbotson, the sole director of the company from its inception, told the Dunedin High Court, he had had no involvement in the spending of company money engaged in by Swann. Futhermore, Ibbotson said he was not aware of any written contracts between Computer South and Sonnford Solutions or between Sonnford and the ODHB. He told the Court he had little to do with the Sonnford and was involved in name only.

Swann secured a job with the ODHB that gave him limited authority involving the acquisition of IT services. As an ‘insider’ – that is a member of the senior executive team of the ODHB – he was able to act as a covert ‘conduit’ between Sonnford Solutions Ltd and the Board – ensuring that the bogus invoices he and Harford collaborated in, were promptly dealt with without any suspicions being raised as to the nature of the so-called ‘services’ carried out by Sonnford.

In authorising these payments himself, all of which exceeded the quantum for which he had authority to act, he committed fraud by means of the false declarations contained in the documents. Swann’s signing authority was for $200,000, in total, per year.

He and Hartford were both convicted of dishonesty and fraud in the use of three such representative documents. Peter Ibbotson as noted was the sole director of Computer South and he and Swann’s wife, Anne Devereux, were signatories to the cheque book, as was Swann.

Once the board’s main investigation was under way and a civil case filed in the High Court at Dunedin on October 27, 2006, the board asked the SFO to run a separate but parallel investigation. Seven months later, in June 2007, the SFO filed criminal fraud charges against Swann and Harford, essentially overtaking the Otago health board’s civil case.

Michael Swann’s name simply did not exist on any official paperwork when it came to companies involved in the fraud of the ODHB. The Kerry Harford-owned Sonnford Solutions Ltd providing invoices to the ODHB – all prepared by Swann and then passed onto Harford for final formatting on a Sonnford letterhead. Payments were forwarded to the bank account of Computer South Ltd which then channelled the rapidly growing proceeds to trust account administered by Grant Fyfe of law firm Checketts Mckay (Wanaka).

Computer South was controlled by Swann and Fyfe must have known the source of all the money being delivered by Swann known as ”Mr Money Bags” for his habit of carrying around suitcases packed full of money. It was set up in 1995 by Swann and his associates and wife so he could continue to work, because as a bankrupt he could not be a director or shareholder of any company.

Like all ‘good’ fraudsters, Swann left little or no paper trail of company appointments or interests and, as it would later transpire, the company declared no employees and no tax returns or accounts were ever filed. And yet Checketts McKay was apparently happy to have dealings with its principal manager throughout the course of his fraudulent transactions and partner with him in the acquisition of properties.

While the sentencing of Swann and Harford to jail terms serves to help uphold standards (via a punishment commensurate with the crime), the unaccounted for public money – about $6 million – sends a wrong signal to criminals by highlighting the perceived impotency and failures of the investigators.

Where has the $6 million dollars of taxpayer funds gone? Enter now Checketts McKay Law Ltd and its associated Trustee companies.

This law firm with offices in Wanaka, Cromwell and Alexander has five principals, including a Mr Iain Grant Fyfe, who in 1997 was a founding applicant and shareholder in Computer South Limited.

Of the company’s 100 ordinary shares, Anna Laura Deveraux, then wife of Michael Swann, owned 34 and Fyffe and Peter Bruce Ibbotson each owned owned 33. Fyfe signed the 1998 Annual Return on 15 July 1998 acting as the company’s “Solicitor” and recorded his ownership of 33 ordinary shares in the company.

As noted above, on 14 September 2006, just over two weeks before Michael Swann was suspended by the ODHB and three weeks before the SFO announced its investigation into his affairs, Kathleen Bennett, agent for Checketts McKay (Wanaka), registered on the Companies Office website the transfer of all 34 of Anna Devereux’s shares to Iain Grant Fyfe and Peter Bruce Ibbotson (17 each).

Devereaux told the Dunedin High Court under oath that she had no idea why she was removed as shareholder or who had instructed it be done. Assuming this is correct, then why did Fyfe comply with the removal ordered by Swann.

Iain Fyfe, principal of Checketts McKay has been identified by the SFO as a co-owner of tainted property purchased with the proceeds of crime and involved in a trust that owned other tainted properties (purchased using the proceeds of crime).

Mr Fyfe told the Dunedin High Court that Swann instructed him to remove Ms Devereux as a shareholder from Computer South in September 2006. Did he ever cite proper company records documenting this decision and confirming Ms Devereaux’s agreement? Clearly he could not have, as this company kept no records and filed no tax returns. It had no assets and no paid employees.

So what was a principal of Checketts McKay – Iain Fyfe – doing involving himself with Michael Swann?

On 22 September 2006 a Checketts McKay agent recorded all 50 ordinary shares held by Iain Fyfe transferred to company director Peter Ibbotson who had been a friend of Swann’s since 1987.

From that point on Fyfe retained his role with the company as its solicitor. Iain Fyfe, a partner of Checketts McKay Law held 33% of the shares in Computer South Ltd throughout most of the six year period that Anna Deveraux’s husband Michael Swann swindled almost $16.9 million from the ODHB.

About the time the ODHB first began an inquiry into the financial activities of Swann, Deveraux’s shares were transferred to Fyfe and Ibbotson and then days later Fyfe sold up his shares in the company to Ibbotson.

Checketts McKay and Iain Fyfe were listed as respondents in Proceeds of Crimes Act proceedings against Swann by the Solicitor-general who successfully sought restraining orders against a number of assets including Central Otago “tainted properties”.

So where has the $6 million disappeared to that authorities cannot trace from Michael Swann’s criminal activities and that he has been ordered to repay?

The Otago Daily Times (19/10/2010) has reported that “information from Crimestoppers has contributed to investigations, including recovery of the assets of convicted fraudster Michael Swann.”

It would appear that forensic investigations into the financial/accounting records of the various trusts set up by Checketts McKay law firm to ‘hide’ Swann’s properties, some involving Devereaux and/or Ibbotson and/or Fyfe, may well provide answers for the police as to the whereabouts of much of the money.

Appendix

Michael Swann’s assets, as detailed in a High Court document, comprised 12 properties, 21 vehicles, five vessels and five containers of vehicle parts.

The Crown sought $15.116 million, less property valued at around $4.4 million which is to be forfeited, and minus already-resolved third party claims.

Justice Panckhurst ordered the forfeiture of 33 items of property Swann bought with the tainted funds. They include six pieces of real estate, 22 high-end cars and 4WDs, two motorcycles, eight boats, a vintage steam engine and various amounts of cash raised from the sale of assets bought with tainted funds. The items are valued in total at $3,492,583.

The judge also declared a further 15 items, valued in total up to $800,000, were available to part-satisfy the pecuniary penalty order. All the items of property are being held by the official assignee until any sale.

Harford spent $324,000 of his $1.784 million on vehicles and boats, $388,000 went to the IRD, $51,000 went on real estate, $550,00 was transferred to personal accounts, $352,000 went to personal and credit card payments, he withdrew $$3,000 cash and paid $23,000 for accounting services.